PRESS RELEASE
Speech by Governor Sejko at the "Eurpean economic governance and EU accession proces: what role for central banks" conference organised by the National Bank of Serbia Belgrade, 28 May 2015

Dear colleagues,

In my opinion, this session raises important questions, which are essential to comply with the requirements of the new economic governance of the European Union (EU), and necessary for good policy analysis and decision making from each central bank.

The discussion today emphasizes the role of the central bank in preparing for Chapter 17. However, it is important to mention that additional chapters, such as those dealing with financial services, Chapter 9, or taxation, Chapter 16, are also relevant to this discussion. These chapters have significant influence on issues such as prices, output, consumption, and investments and are, therefore, often crucial to central bank policy. A similar claim can be made for chapters 23 and 24, which deal with law enforcement and collateral execution, and Chapter 18, which deals with statistics.

The correct implementation of these chapters interacts directly or indirectly with the central bank's role on monetary policy, financial stability, banking supervision and, last but not least, its role as a statistical agency.

Returning to the challenges of the central bankers with regard to Chapter 17 obligations, there are two important topics that deserve the utmost attention. I would like to use the Bank of Albania as an example to illustrate my ideas.

The first one is the ability of the central bank to produce, analyze the current economic developments and forecast expected ones that meet the requirements of the EU governance process.

During the last twenty-five years, the objectives and policy instruments of the Bank of Albania have gone through significant changes. Eventually, the Bank of Albania evolved into a modern institution that safeguards price and financial stability, at the same time fulfilling banking supervision and other traditional central banking duties.

The Bank of Albania produces detailed analyses and forecasts for main key macro-economic indicators that are relevant to monetary policy, financial stability, monetary operations and banking supervision. The current monetary policy framework is inflation targeting, and decision making is based primarily on inflation forecasts and shock analysis scenarios.

A substantial amount of research has been dedicated to the statistics compilation, analysis, and forecast tools, which are regularly published and documented. They enable the central bank to understand and forecast not only inflation, but also relevant information, including the fiscal sector, employment, real economy, and foreign developments. When all taken together, it is easy to understand that the Bank of Albania has the capacity to generate a significant volume of accurate analysis, forecasts and shock scenarios for almost every indicator and development in the Albanian economy. However, technical cooperation with the European Central Bank (ECB) and its member central banks would be of a great support to our experience and expertise.

The second topic I would like to dwell on is coordination, cooperation and joint discussion within and outside the central bank. This is crucial. Currently, we share with the [EU] Commission forecasts and analyses based on the most recent domestic economic developments and conduct regular face-to-face yearly meetings. Most importantly, the central bank has the same level of representation as the Ministry of Finance in the discussions regarding economic and monetary policy.

However, despite all of this, more can be done, especially in terms of raising the level of cooperation with the ECB and other financial oversight institutions, such as the European Banking Authority (EBA). Let me illustrate this through some ideas.

The central banks of candidate countries would benefit from regular participation in meetings, discussing important changes to the legal and institutional monetary and financial infrastructure. It would be beneficiary for us to be briefed on the current coordination practices of the ECB members with the Commission and how the governance procedures and framework are streamlined among national authorities and the Commission.

Advances in research and the speed of change in policy practices and tools, render it necessary to share up-to-date information on decisions undertaken by both the ECB and the EBA.

Internal research at the Bank of Albania indicates that policy decisions made by the ECB and the EBA, in the context of the new and innovative monetary and macro-prudential policy tools, could have a significant effect on our economies. These shocks, and their potential effects, are valuable information that should be correctly modeled and incorporated in our forecast models.

As a result, I believe that it is necessary for candidate countries to have a formal role during the discussions of the technical committees and the ability to provide their views on matters of importance to them. These opinions will give a chance to EU authorities to know the potential implications of their decisions and provide them with the basis for future renegotiations of the goals and objectives.

Last but not least, the establishment of regional technical research and policy networks to discuss the economic performance of individual countries will serve as a learning process. The central banks in the region should use this opportunity to cooperate frequently and share their experiences in modeling, analyses and forecasts. A regional network would help in coordinating these issues, as well as improving the process and procedures in preparation for the new EU economic governance procedures and the EU Accession process in general.

To conclude, I think that there are no major obstacles in our way, but enhancing the current state with the adoption of the best practices from both EU-based and international institutions, or euro area central banks, could bring additional benefits to the new economic governance process. It will help both the Commission and the candidate countries' central banks to improve communication and cooperation and produce the best outcome in terms of economic and monetary policy, to achieve real convergence, stability and prosperity.

Thank you!